Question: Firm A is considering to choose one project from the following two: a low risk project or a high risk one. The company has $3,400
Firm A is considering to choose one project from the following two: a low risk project or a high risk one. The company has $3,400 debt. The probability of good and bad economy state is 40%, and 60%. (NOT 50%!!). Firm value Firm value Economy Prob. Low Risk Project High Risk Project Bad 40% $3,000 $ 2,800 Good 60% $ 3,800 $ 4,200 Based on predicted firm value under the bad and good economy, please calculate: (note: firm's value equals to a summation of prob. * predicted value under each economy) Expected firm value if firm adopts the LOW risk project. (Format and round to whole number, NO decimals,no ",", for example: 12500) Expected equity value if firm adopts the LOW risk project. (Format and round to whole number, NO decimals,no ",", for example: 12500) Expected debt value if firm adopts the LOW risk project (Format and round to whole number, NO decimals, no ",", for example: 12500)
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